TigerHawk

TigerHawk (ti*ger*hawk): n. 1. The title of this blog and the nom de plume of its founding blogger; 2. A deep bow to the Princeton Tigers and the Iowa Hawkeyes; 3. The nickname for Iowa's Hawkeye logo. Posts include thoughts of the day on international affairs, politics, things that strike us as hilarious and personal observations. The opinions we express are our own, and not those of each other, our employers, our relatives, our dead ancestors, or unrelated people of similar ethnicity.

Sunday, September 09, 2012

The official TigerHawk plan for restoring private sector job growth in the American economy

The alarming numbers proliferate the deeper you look: 40.7% of the people counted as unemployed have been out of work for 27 weeks or more—that's 5.2 million "long-term" unemployed. Fewer Americans are at work today than in April 2000, even though the population since then has grown by 31 million.

We are still almost five million payrolls shy of where we were at the end of 2007, when the recession began. Think about that when you hear the Obama administration's talk of an economic recovery.

Read the whole thing, including this bit:

Older Americans can't afford to quit. Ironically, since the recession began, employment in the age group of 55 and older is up 3.9 million, even as total employment is down by five million. These citizens hope to retire with dignity, but they feel the need to bolster savings as a salve for the stomach-churning decline in their net worth, 75% of which has come from the fall in the value of their home equity.

The baby-boomer population postponing its exit from the workforce in a recession creates a huge bottleneck that blocks youth employment. Displaced young workers now face double-digit unemployment and more life at home with their parents.

Many young couples decide that they can't afford to start a family, and as a consequence the birthrate has just hit a 25-year low of 1.87%.

This is not to make a partisan point -- one need not ascribe presidential "fault" for the current disaster to recognize that is exactly what it is. Young people are neither having the experiences they need to be productive in the future, nor are they having babies. We are borrowing an incremental $1.5 trillion a year, more or less, that will have to be paid back by fewer people who are less productive. We are supporting our own standard of living today, such as it is, by destroying the standard of living of young Americans, and those not yet borne. Is there anybody who can do even the most basic math who disagrees with that point?

So the question is, how do we restart the American job engine and turn our vicious cycle in to a virtuous one? Enact as many of the following proposals as possible, as quickly as possible. True, many of the prescriptions below will irritate left and right or gore special interests, but each and every one of them will unlock labor markets and create opportunity by reducing the risk, expense, and hassle of employing people and starting up small companies (that inevitably generate almost all of the net job growth in the economy). The good news is that none of these proposals call for big new government programs, corporate welfare, or industry-specific subsidies or deregulation (such as "drill more oil" or "approve the Keystone pipeline"). Nor do these proposals call for big tax cuts for the "rich" or require the political settlement of huge issues that closely divide Americans.

1. To lift up the poor, allow any employer to hire any worker for less than $10 per hour without filling out a single piece of paper or paying a single tax. No payroll taxes (of which more below), no immigration forms, no Social Security number, no nothing. Pay cash if you want. Above $10, scale incremental tax expense so that the marginal effective tax rate never exceeds the top marginal income tax rate. Substantially reduce the paperwork requirements for all employers, including government contractors.

2. Lower the risk of hiring people by making it much easier to fire them. Immunize employers for slander in the giving of job recommendations so that they can give real information rather than "name, rank, and serial number." Limit damages for individual employee liability (such as for discrimination) to twice lost wages, capped at one year of pay. In return, immunize former employees from slander or libel damages for things they say or write about their former employer, online or otherwise, after the fact (which will give a strong incentive to employers to treat people fairly and respectfully, even on dismissal).

3. Uncouple health benefits from the employment relationship (a virtually essential element of any health care reform plan other than Barack Obama's). The relationship between the two is an accident of history, a function of government wage controls during World War II. The linkage deters hiring every day, especially for the poor.

4. End payroll taxes entirely. To do this, we have to kill off the Social Security tax and uncouple Social Security from employment (that is, you get it whether you worked or not -- consider taxing benefits as ordinary income to make up for the added cost). Fund it from general revenues by eliminating all payroll taxes and substituting income taxes, since that is what we are going to end up doing anyway when all those Treasury securities in the "trust fund" mature. Revise the personal income tax to tax all income, from the first dollar, at some rate adequate to make up for the elimination of payroll taxes. Assume for this exercise that the aggregate tax burden at any given level of income will be no more or less progressive than under the prior system.

5. Bring back shop class in our schools (a sentence I never thought I would write, insofar as I hated shop). At all times in all schools, require discipline, honesty, punctuality, and above all, respect for the work. Send the message that work for money makes a contribution to our society by allowing paid employment at a local business to satisfy "community service" requirements. Teach students how to be good employees, even if you have to bring in non-teachers to do it.

6. Recognize that state and local regulation in many parts of the country makes it a lot harder to start or expand businesses than it ought to be (the differences between Austin, Texas and Princeton, New Jersey, both liberal college towns, are startling). How long does it take to get a building permit? How many jobs require a "license" and how hard is it go get one? How difficult is it for businesses to do simple things, like putting tables on the sidewalk or selling alcohol? To what extent do state or local regulations establish wasteful anti-competitive schemes, such as taxi monopolies and rent control? To address this, order the federal Department of Commerce to develop an agreed upon "score card" that measures state and local regulations and identifies best and worst practices from the perspective of business formation and expansion. If sunshine does not drive reform, tie federal funds to the elimination of "worst practice" state and local regulations that unreasonably interfere with business formation or expansion.

7. Require that all new federal regulations be accompanied by "an employment impact statement," the data in support of which is fully available on line and subject to open-source critique.

8. Require that all existing federal regulations be eliminated or reviewed for their impact on employment during the next five years, and once per decade thereafter. Consider an aggregate cap on regulation: For every job killed or prevented by new federal regulations, other regulations must be eliminated to compensate. This will force our regulators and politicians to make difficult and serious choices.

9. Make it a lot easier to raise capital to start a business by making it a lot easier for venture investors to "exit" a successful one. Make it a lot easier for privately-issued shares to trade after they have been issued. Direct the SEC to favor public stock offerings of venture-backed businesses (this is as much a question of attitude as anything else, so it may require some cleaning of house in that agency). Eliminate Sarbanes-Oxley Section 404, which requires a costly "internal controls" audit that makes public companies (and aspiring public companies) of all sizes far less nimble and encourages a culture of risk aversion in virtually all American public companies. Eliminate the Public Accounting Oversight Board, the mere existence of which has massively increased the expense of financial statement audits with no obvious benefit in transparency.

10. Annual revisions in generally accepted accounting standards are both expensive and wholly confusing for the people who actually use financial statements, lenders and equity investors. Agree that GAAP will be revised, either directly or by SEC pronouncement, no more often than once per decade.

11. Not only do we need for winning investments to have a ready and quick exit, we need for losing investments to do as well. Allow taxpayers to deduct all capital losses against ordinary income. That will allow for much faster recognition of losses which will return capital to the system for reinvestment much more quickly. Raise the capital gains rate a bit if necessary to fund full deductability.

12. Reconfigure immigration policy to attract skilled and wealthy immigrants who are likely to start new businesses.

13. If the political price of #1 and #12 above requires it, fund a massive expansion of the border patrol. That will both generate jobs (the only "make work" proposal on this list) and choke off the supply of new illegal aliens.

Of course, these proposals do not fundamentally touch macro considerations, such as fiscal policy, corporate tax policy, individual income tax policy (except to the extent necessary to eliminate payroll taxes and decouple health benefits from employment), international trade, national labor relations, or our system of civil liability. There are, no doubt, a great many things we could do in those areas to help employment as well, but they each touch fundamental and closely divided disagreements in American public life. The point here is to show that there are relatively low cost policy moves that could be done now and in the medium term to fire up the jobs market without requiring the "settlement" of these huge issues (recognizing our utterly dysfunctional political class would struggle to enact even my relatively minimal program).

10 Comments:

To your fine list I would add only a flattening of the progressively of the tax code and elimination of essentially all deductions, or at least as many as possible. If we all have an investment in the cost of government, instead of a minority of us, it'll help.

"So the question is, how do we restart the American job engine and turn our vicious cycle in to a virtuous one?"

Don't you wonder if the problem isn't more basic? If, given the state of the economy, there still remain nearly half of Americans still willing to vote for the present-day version of the Democrat party then one has to wonder if we aren't doomed to go through a long period of poverty and tyranny before we rediscover the path you describe.

1. To lift up the poor, allow any employer to hire any worker for less than $10 per hour without filling out a single piece of paper or paying a single tax. No payroll taxes (of which more below), no immigration forms, no Social Security number, no nothing. Pay cash if you want. Above $10, scale incremental tax expense so that the marginal effective tax rate never exceeds the top marginal income tax rate. Substantially reduce the paperwork requirements for all employers, including government contractors.

You'll have to make some adjustments on this one, or the flood of illegals will become a tsunami.

We’re turning into a Borg society – a combine of government and some segments of corporate America. We’ve gotten here slowly, by degrees, over many decades. But we’ve just recently passed the point where the Borg has become un-financeable with Old School market-based taxation. That’s because the non-Borg private sector doesn’t make enough to support the Borg through taxes. We’re now part way to a centralized command economy where we all get paid in government scrip laundered through the Fed and redeemable only at the Borg company store.

Some employees in the Big Borg have it cushy, but many who live in the quasi-private part of the Borg live in fear of being downsized. If you work in the Borg you’re more likely to get paid based on where you sit, how insulated you are, and how much political juice you have, than on traditional metrics of hard work equals reward.

Obama & Co’s answer is to create more jobs in the government Borg and the likes of Solyndra, but each job they’d add costs even more jobs in the non-Borg sector, as there’s a new kind of multiplier effect at work. Yes, we need teachers and cops, but only so many.

The world has a huge debt overhang. It’s big in the USA, but we’re not alone. This debt has inflated the values of lots of things and created no end of economic distortions. The big central banks are trying to paper this over with more debt. But if the debt isn’t cut, it’ll crush long-term growth at the cost of new private sector jobs. But if the debt is reduced, the Big Banks will be exposed as balance sheet broke. This problem is more acute in Europe than the USA, which is helping to prop up the USA, at least in the short-term, but it’s our problem too.

With this backdrop, how do we get to the greater than 4% growth necessary to pull out of the tailspin we’re now in. The drop in the workforce participation rate is truly alarming when looked at in this light – fewer of us are contributing to growth, more of us are dependent.

The Borg wants to pretend and extend. Obama doesn’t want to waste a crisis.

Problem: Many if not most of the job-killing regulations have already been hammered into law, including the EPA's wonderful ability to veto any single project any bureaucrat in the agency decides needs to be killed.

There needs to be a massive ripping-out of Teh Stupid, starting with an immediate rollback of every EPA regulation to 2008, with a one-year freeze on any new EPA reg, subject to congressional veto.

TH, what in God's name would make you think that Democrats have any interest at all in fostering private sector job growth? Private sector job growth robs Democrats of their largest core constituency--people dependent on government. Take away dependency and the Democratic party has nothing left to offer.

In the dark days before Obama Democrats tolerated the private sector because it was deemed necessary to finance growth in government. Three and half years and five trillion borrowed dollars later it has become apparent that global credit markets plus a healthy dose of printing can more than compensate for private sector job growth. Thank you, but your services are no longer required.

Throughout economic history, always and everywhere, soft money has bred socialist, kleptocratic administrations. We are not immune.

History does not repeat itself, but it rhymes. Bush will go down in economic history as an American Bismarck, a conservative who crossed over to adopt broad social legislation in an effort to forestall the socialists. Obama will move the ball further down field on the way to our own Weimar moment in history.

President Obama is clearly revealing his rapid loss of any grip on the economic and security issues that are of utmost importance to our country. His economic and foreign policy blunders are manifesting chaos. On the same day when we see more chaos erupting in the Middle East and President Obama declaring that Egypt is no longer considered our ally, the Federal Reserve announced that it will spend $40 billion a month to purchase mortgage-backed securities with no end date set. QE3 is upon us.

In a speech nearly two years ago, I asked: “If [QE2] doesn’t work, what do we do then? Print even more money? What’s the end game here? Where will all this money printing on an unprecedented scale take us? Do we have any guarantees that QE2 won’t be followed by QE3, 4, and 5, until eventually – inevitably – no one will want to buy our debt anymore? What happens if the Fed becomes not just the buyer of last resort, but the buyer of only resort?”

As predicted, QE3 is upon us. Is it any wonder that the dollar is down against major currencies? This temporary, artificial economic “stimulus” bought at the expense of high inflation is no substitute for a stable currency and genuine long-term economic recovery. This is what happens when big government centralized planners try to “plan” our economy. President Obama is no doubt happy, though, that this latest sugar fix comes 53 days before the election.

I very much agree with your list, but thought your comparison of Austin with Princeton very funny. I am from another small college town just south of Austin and folks around here think that start up hurtles in Austin are totally absurd. My thought on a tax structure to solve Americans economic job problem is similar but simpler. Probably because I am a small business owner and not a big time CEO like you. 1)End payroll tax. Make SS contributions a flat 10% on all wage earnings. Larger employers can voluntarily assist employees in making these contributions, but small ones are not required to. This SS contribution would actually buy a US federal bond with a maturity date matching the contributors retirement age. These bonds could only be cashed in early due to disability. This could bring in a substantial amount of currently under the table economic activity. It would make everyone concerned about the US debt. It would allow people to create their own job and a job for their buddy without someone needing to become a quickbooks expert. I agree wholeheartedly to the reduction in employer paperwork.

2)Create a flat simple progressive income tax. No deductions, no special filing status, tax wage income, interest earnings, and dividends identically. No tax on corporate earnings and no tax on capital gains. NO deduction of capital losses and all that crap.So something like three income brackets for example only: 0-30K income 0% tax. 30-120K income 10% tax. 120K-up income 20% tax. This system would basically allow money used to produce and grow our pie to not be taxed while money taken out to consume would be taxed. This system would allow the net worth of Americans to increase. I would then tie the estate tax to pay for medicare expenses of the people with decent estates. In other words you can't pass it on if you cost a small fortune before you go in medical expenses.

These are all simple common sense solutions to our problems. Big impediment is Congress. Without lots of rules and deductions to jicky do with what would our congressional folks use to ask for campaign contributions? LOL why regulations of course...